21. Business finance: needs and sources

1 Which of the following is not a reason why a business needs money?

1) To start the business

2) To expand the business

3) To deal with a negative cash-flow problem

4) To increase prices of its products

• 1)

• 2)

• 3)

• 4)

2 When a business expands it usually needs finance for which one of the following reasons?

1) To pay for increased working capital

2) To pay back shareholders

3) To pay the government a grant

4) To provide a loan to the bank

• 1)

• 2)

• 3)

• 4)

3 Which of the following is an example of internal finance for a limited company?

1) Selling shares

2) Selling debentures

3) Obtaining a loan

4) Selling off inventories

• 1)

• 2)

• 3)

• 4)

4 Which of the following is an example of external finance for a limited company?

1) Retained profits of the company

2) Selling shares

3) Sale of assets no longer used in the business

4) Selling off inventories

• 1)

• 2)

• 3)

• 4)

5 An advantage that an overdraft has over a bank loan is that:

1) it has a fixed rate of interest

2) it is paid back over a fixed time period

3) no dividends have to be paid to shareholders as with a loan

4) the size of the overdraft can vary with the needs of the business

• 1)

• 2)

• 3)

• 4)

6 An advantage that share capital (equity capital) has over long-term loans is that:

1) the capital never has to be repaid

2) the rate of interest on shares is fixed

3) the balance of control in the business will change if more shares are issued

4) dividends are paid on long term loans but not on shares

• 1)

• 2)

• 3)

• 4)

7 Which one of the following is an advantage of micro-finance for an entrepreneur setting up a business?

1) There are no interest costs so the business will be more profitable

2) Very large loans can be obtained

3) The finance does not have to be repaid

4) Finance is provided to people who could not usually obtain a bank loan

• 1)

• 2)

• 3)

• 4)

8 An advantage to a business of leasing computers rather than buying them outright is that:

1) the loan never has to be repaid

2) the computers will never go out of date

3) the total cost of leasing is always cheaper than buying the computers

4) the company does not have to find a large cash sum to buy the computers

• 1)

• 2)

• 3)

• 4)

9 Which of the following business decisions is likely to need long-term finance?

1) Increasing inventories of goods for the summer season

2) Hiring a car for the sales manager

3) Building a new factory

4) Paying creditors for goods supplied

• 1)

• 2)

• 3)

• 4)

10 A flower seller plans to increase inventories of plants before a major festival. Which of the following is the most likely source of finance?

1) Bank overdraft

2) Leasing

3) Share issue

4) Debentures

• 1)

• 2)

• 3)

• 4)